*. Reader question: Can you please explain to me how the million dollars of super ever runs out? My thoughts are, if you have a million dollars in super and it returns 7% then you acquire $70,000 a year. This is just spending what your fund earns, not the one million dollars as a principal sum, so why does it ever run out?*

** ASIC’s response:** The MoneySmart Retirement Planner works in “today’s dollars”. So if we assume an inflation rate of 3%, the calculator also increases your drawdowns by 3% each year in order to maintain a similar lifestyle. This means that a $70,000 withdrawal per year would partially dip into your capital after year 1. Or, expressed another way, a notional return of 7% is equal to a real return (after inflation) of 4%. If you only withdrew 4%, it would last forever.

**Note: **You can see the difference between today’s dollars and tomorrow’s dollars in the *SuperGuide* table appearing later in the article.

*2. Reader question: I just don’t get it. If I have $1.6 mil @ 7%, I generate $112,000 pa so how can my super run out at 87 or 100 if I only withdraw $100,000 pa? Will my super not keep growing? Or is it to do with the aged-based minimum withdrawal increases?*

** ASIC’s response: **If we assume an inflation rate of 3% we also assume that you will increase your drawdowns by 3% each year in order to maintain a similar lifestyle. In effect, your real returns are only 4% each year. This means that you would start to dip into your capital after year 1. You earn 4% in real terms [Trish’s comment: but the amount being withdrawn is more than 4% in real terms each year, which explains why your capital base falls].

For example, if you start at age 65 with $1.6 million, you can draw $83,895 income per year (indexed each year by 3%, and assuming an investment return of 7%) and your funds are estimated to last until age 100.

*3. Reader question: I wanted to ask about your statement in this paper [in the introduction of $1 million retirement article] to the effect that a “lump sum of $400,000* can deliver a couple nearly $60,000* (indexed) a year in retirement (which includes the couple’s Age Pension entitlements) until the age of 87?. Using an Age Pension calculator, I get a figure of approx $23,000* per annum from the Age Pension (for a couple). That leaves about $37,000* per annum to make up. Trouble is, according to my calculations anyway, with a super balance of only $400,000, I can’t see a way to generate $37,000 for 22 years, even if invested at 7%, especially if we insist on indexing it at 3%. Have I missed something?”*

** ASIC’s response:** The full Age Pension for a couple is roughly $34,382* a year, while for a single person it is just under $23,000* a year. On an account balance of $400,000*, the MoneySmart Retirement Planner estimates the income (Age Pension + super) to be just under $60,000*, which includes a substantial PART Age Pension, or FULL Age Pension for many of those retirement years.

** Trish’s note*:** These figures are adjusted by Trish Power to allow for Age Pension increases incorporated into MoneySmart Retirement Planner since the article was first published. The lump sum of $400,000, along with a substantial part Age Pension, delivers just under $60,000 a year for a couple, assuming savings are invested in assets that return 7%, and annual income is indexed at 3%, and including Age Pension entitlements.